When we argue on the basis of a conviction, we should be seeking to verify our position, rather than to confirm it

“When the facts change, I change my mind. What do you do, Sir?” This statement has been attributed to many great people – most frequently to the economist John Maynard Keynes. That is probably incorrect, but let us not be distracted by the question who might the originator of such a pithy and powerful symbol of evidence-based practice in everyday life.

It’s the kind of thing many of us wish we could say ourselves, or even that we believe we could actually legitimately claim to do. Who wants to stubbornly stick to a conviction in the face of facts that contradict it?

And – you can probably see where we’re going – yet, what people think they do and what they actually do are often two different things. In a recent episode of the BBC radio show More or Less, one of the topics was the overconsumption of sugar as a public health concern. Have the people of Britain really been eating and drinking too much of the sweet, sweet stuff? And does that warrant new regulation and taxes? Sugar consumption is calculated in different ways, but whichever way you look at it, the trend seems to be firmly downwards. According to the Family Food Survey consumption per capita has fallen from 92 to 71 g/day since 2001, the UN Food and Agriculture organization calculates it dropped from 45kg annually per person in the early 1960s to less than 35 today.

Annoying facts

The key measure that is used in public health is the proportion of our energy intake derived from sugar (as it is deemed to be linked to obesity). This too has steadily dropped – the National Diet and Nutrition Survey suggests adults get just over 11% of their energy from sugar, down from close to 15%, but still way above the guideline of 5%. However, that was halved from 10% in 2015 – a move of the goalposts, cynics might observe. The justification for this cut is intriguing, as the committee responsible found insufficient evidence for a link between sugar consumption and key bad health outcomes, like cardiovascular disease, colorectal cancer and type 2 diabetes. The main reason seems to have been that, apparently, if we reduce our sugar consumption, we do not compensate by consuming more calories in a different form. By that mechanism, cutting down on sugar will reduce overall energy intake, and hence obesity.

Are you sure that extra lump won’t take you over the guideline? (image: rawpixels)

All interesting facts. But the reasoning of the Head of Nutrition Science at Public Health England, the body that lowered the guideline, appears to be motivated more by convictions than by these facts. (It is worth listening to the interview snippet in question – it is about 4 minutes long, starting at 7:20). Despite multiple valiant attempts to bring the facts into the discussion, show host Tim Harford is met with the impenetrable stubbornness of the people who are convinced they are right.

Another example comes from a recent Wiki Man column by Rory Sutherland in the British weekly The Spectator. Perhaps the gilets jaunes, the Five Star movement in Italy, and even the Brexit or Trump supporters are not – as the media keep maintaining – evidence of resurgent nationalism and populism, he argues. Maybe they represent a sensible, overdue reaction against the multitude of changes that ideologically motivated elites have imposed on the world: economic globalization, free movement of people, the euro, large-scale immigration – too much, too fast. And the economists, who usually make such decisions, with little regard for either time or scale, get the brunt of the blame.

Identity matters

The economists’ central problem is the apparent neglect of the concept of identity. Economists pay too much attention to material wealth, and not enough to the fact that people seem to instinctively value their collective identity, their affiliation with groups (nationality, race, social class etc) just as much as the acquisition of wealth. And while the latter scales easily, the former doesn’t – “There is no logical reason why people cannot say ‘I support all the football teams in the north-west of England’ but nobody ever does.”

This is an interesting argument (I would of course say so, as I have written before about both the importance of identity and the effect of it on voting). An experiment from nearly 30 years ago by Charles Perdue and colleagues illustrates the strength of the sense of identity and belonging. The participants in their study (who were told it was about verbal skills) received a list of nonsense syllables (like xeh or yof) paired with either in-group words (us, we, ours), out-group words (them, they, theirs), or neither (he, she, his, me etc). The subjects then had to assign a ‘pleasantness’ score to each nonsense syllable. The result? People for whom a given syllable had been paired with an in-group word rated it as significantly more pleasant than the neutrally-paired syllables; and syllables paired with an out-group word were deemed the least pleasant.

So how come people overlook the importance of identity? We generally believe our own argument for or against something to be rational, so we tend to selectively support it with factual evidence. Those who disagree (and who must therefore reject our rational argument) are evidently irrational. This definitely was, and to some degree still is, a common Remainer narrative following the Brexit referendum. There was no strong pro-European identity on that side at the time, and the principal case for staying in the EU had a material foundation: the economic advantages of remaining were overwhelming, and the downsides of leaving were dramatic. How could reasonable people vote Leave? If they did so, how could it be explained other than by nationalism and populism, by xenophobia and nostalgia for a time when Britannia ruled the waves? Identity didn’t figure as a legitimate reason for wanting to leave.

Right identity, but shouldn’t a proper British passport be blue? (image: Holiday Gems CC BY)

Rory Sutherland even states that this is a principled argument for a hard Brexit. A provocative counterfactual claim like his can be rather useful: challenging longstanding and deep-rooted beliefs needs a proper shake-up, not a timid tap on the shoulder.

But when we confront blind partisanship, confirmation bias, selectivity and so on in this way, we need to be careful that we do not succumb to the same problem as the people we have in mind. When we observe what we judge to be faulty reasoning – especially if we feel strongly about it, we can start to believe our own reasoning is inherently and objectively correct. And that overconfidence can make us lose rigour in arguing our case.

There are undoubtedly economists who have no interest in social preferences like identity, but when the entire profession is presented as the villains, is that actually true, or just a stereotypical conviction that we no longer think needs to be verified? Unsurprisingly one economist took issue with such a broad-brush accusation:

Overstating the case by understating the facts

Identity may not be a mainstream topic in conventional economics, but overstating the case (by claiming it doesn’t figure at all) risks weakening its credibility. And of course, when – rightly –identity is introduced in the decision-making process, it needs to be weighed up against other elements, not least the economic consequences. Identity is only a principled argument if it is valued more highly than the corresponding economic loss. Such trade-offs between the immaterial (social and emotional preferences) and the material (economic outcomes) are very much the domain of economics and economists. (And arguably, not all proponents of Brexit motivated by identity had come to their decision with full recognition of all the facts.)

So we have the official being dismissive of the facts that question the reasons for cutting the sugar intake guideline by 50%, we have a simplistic Remainer narrative that ignores the fact that identity can play an important role in decision-making, we have a simplistic Leaver narrative that only looks at identity and brushes off the economic facts… And we have a critique of the Remainer narrative which, while essentially valid, is perhaps a bit quick to condemn a group of people, and that sounds a little uncritical to the simplistic Leaver narrative.

Ironically, among the better ways to avoid bias in such reasoning is a core instrument in the toolkit of the reviled economists: the economic way of thinking – the good old ‘on the one hand’ and ‘on the other hand’. If we want to avoid countering a one-sided argument with a one-sided argument of our own, we have to be critical of ourselves. It is not because others are wrong and we can point out why, that what we say is right just because we say it.

We still need to make sure we’re not falling in the same trap of believing that our argument is entirely rational, when our reasoning is mostly motivated by our own preferences, convictions and beliefs.

And perhaps most importantly we should always check our own facts. (I hope I did.)

]]>https://koenfucius.wordpress.com/2019/01/18/the-unequal-struggle-between-facts-and-conviction/feed/0chesspieceskoenfuciussugar in the cuppassport3metcalfetweetStrange excesses: on insurance and probabilitieshttps://koenfucius.wordpress.com/2019/01/11/strange-excesses-on-insurance-and-probabilities/
https://koenfucius.wordpress.com/2019/01/11/strange-excesses-on-insurance-and-probabilities/#respondFri, 11 Jan 2019 05:39:07 +0000http://koenfucius.wordpress.com/?p=2145Continue reading →]]>How insurance can sometimes be a gamble in more than one way

Are you a gambler? Let’s not count lottery draws, or even the occasional punt on a horse or the result of a football match. If we exclude these, chances are you wouldn’t consider yourself the gambling kind. And yet…

…we are all gamblers. When we take out insurance, we gamble. We bet against the insurer that our house will burn down, that we will die prematurely, or that we will crash our car. If our house never catches fire, we live to be 90, or we are very safe drivers, we lose: all our premiums are ‘lost’. The insurance company takes the opposite bet: it loses if it needs to pay out for the insured event if that amount is larger than the premiums we have paid.

And when we don’t take out insurance – say travel cover – we gamble too. We save ourselves the premium, but there is a risk that we fall over and break our arm, catch malaria or whatever. Should that happen, we have to bear all the costs.

Quirky phenomena

Yet few among us have any idea of the actual risk that our house will burn down, that we’ll die before the kids have flown the nest, or that we will collide with another vehicle. We may not know the risk, but it is vital for insurance companies to do so: to stay in business, insurers need to be very, very good at estimating the risks involved. If they overestimate them, they’ll charge premiums that are higher than they need to be, and end up more expensive than their competitors who are better at judging it. If they underestimate the risks, they will quickly go bankrupt.

Still, we come across quirky phenomena in the insurance market. If you’ve every used a comparison site to see what it would cost to insure your car, you will have noticed that, as you scroll down from the best quotes at the top, the premiums go up to twice, three times even six times or more the cheapest premium. As these quotes are based on exactly the same information, you would expect insurers to provide if not identical, then at least similar quotes – unless they classify the various risk factors very differently.

The premium takes into account many different aspects, including your age, your occupation, where you live, the car you drive (how old it is, what type, what it’s worth) and so on. Converting these factors into risk is more black magic (with a sprinkle of statistics) than hard science, but it is what makes the distinction between profit and loss for an insurer.

Yet we are not entirely stuck with the insurer’s assessment of the risk we pose. We can convince the insurer that we are a better risk than they think, and get to pay a lower premium. That is what the voluntary deductible excess is for – the part of any claim that we will pay ourselves before the insurance pays out.

Apart from this minor collision with a submarine, I am a safe driver, really. (image: Marinmuseum Karlskrona CC BY)

A few weeks ago, I needed to renew my own vehicle insurance, and I wanted to see what the effect was of the voluntary excess on the premium. Is there an optimum excess amount? I opened a spreadsheet, and ended up spending an instructive couple of hours.

I reasoned that, if I am a very safe driver, a high excess will hardly bother me, as I am unlikely to have to dip in my piggy bank for it. This is, in effect, a wager between the insurer and me. Their stake is the discount to the premium, and they bet that I will make a claim. If that happens and the claim is larger than the excess amount, they win that amount (in that they cut the pay-out by that sum). For me it’s the opposite: if I don’t make a claim, I pocket the discount, but if I do, I lose the excess.

Signalling a lower risk

Is opting for a voluntary excess a good deal? That depends: a £500 excess that gets you a reduction of just £1 would seem to be a terrible deal. But we can actually work out what would make a deductible excess an attractive proposition. Imagine a driver whose risk profile predicts that, on average, he will have on average an accident once every 10 years (hence, a 10% chance they will make a claim this year – this is the UK average), with an average claim size (in the UK) of £3,000. With no excess, the breakeven point for the premium would then be £300 per year (let us ignore the insurer’s costs and profit margin to keep things simple). With an excess of £100, the average pay-out would drop to £2,900 – so the breakeven premium would be reduced to £290 per year.

Such a deal would be neutral: what you gain in lower premiums, you would lose in the excess when you make a claim. To really gain through a voluntary excess, you’d need to look for a deal where you get a larger cut in the premium. For my chosen insurer, I found that an excess of £150 reduced the premium by nearly £24. If we apply this to the UK averages, then the pay-out would now be £2,850 (£3,000 – £150), and the annual premium would be £276 (£300 – £24). The original risk of 10% (£300/£3,000), has now dropped to £276/£2,850 or 9.68%. The lower premium signifies that agreeing to a £150 excess has improved my risk profile.

And that does indeed make me better off: my gross saving is £24 per year, of which I must use £15 as a provision to cover he excess. Over 10 years (the average period in which I make one claim – 10%, remember?) I will have accumulated the £150 I need to pay myself, but also an additional £90. Hurrah!

But wait, we’re not finished yet: what if we increase the voluntary excess? Raising it to £250 cuts the premium by a further £11. My risk profile improves a little (to 9.64%: £265/£2750) and I now pocket £10 per year (I need to hold back £25 to cover the excess over 10 years). How about a £350 excess? Now things are getting strange: the premium is now down to £258, which means my gross saving is £42. But I also need to set aside £35 to cover the excess, so my net saving is down to £7. And it gets worse: raising the excess to £450 cuts the premium by just over £1. With a premium of £257, my risk level is 10.08%, higher than I started with! And that is reflected in the fact that I no longer make a net saving: I pay £43 less than originally, but I need to hold back £45 for the excess, so I am losing out to the tune of £2 per year.

What do we learn from this? First, a voluntary excess can indeed be a strong signal that I am (or at least believe to be) a lower risk than standard – and that I am willing to put my money where my mouth is. If I am happy to pick up the first slice of the claim (and not make frivolous claims for minor dings) the insurer is happy to reduce my premium.

More importantly, we should not take anything for granted. Insurers can exploit the fact that we cannot intuitively distinguish a good deal from a bad deal – we may be taken in by a reduction in the premium that does not properly reflect the reduction in the risk. In this case, there was clearly an optimum at the £250 level. I would have lost out had I gone for the highest excess.

And most important of all… thank goodness for the reward of intellectual and moral satisfaction. I realized a net saving of £10 on my premium, and I could have ended up £2 worse off. That result hardly justified playing around with a comparison website and a spreadsheet for a couple of hours. But the knowledge that I saw through the insurer’s shenanigans? Priceless!

Caring is a strong motive for quite a big chunk of our behaviour. If we care about something (or somebody), it means we are willing to put energy into it, effort, time and cost. It often acts as an inherent basis for action, beyond material incentives. But is caring an unconditional force for good?

It certainly has a good reputation. Many of us look up to people in a ‘caring profession’, who help others, like nurses, school-teachers, or who work with vulnerable people. Similarly, folk who volunteer for to help the poor or clean up the environment (because they care) tend to get respect in society. And of course it is hard to imagine how that society could a function at all if we did not care for our children, siblings, (grand)parents, friends, neighbours or colleagues.

Too much of a good thing

If caring is such a good thing, can there be too much of it? We want to protect the object of our caring from harm, or to make things better for it. If the effort we put in with that intention delivers the desired effect, we are rewarded for our input, we experience a positive emotion, and all is fine. Seemingly, even when we do things just because we care, we still remain economic beings, and we need the costs to balance the benefits. But what if we care too much, and the implicit goals that follow are too big for us, or simple unattainable?

No individual can single-handedly end hunger and poverty, deliver world peace, or fix the IT system at work. We have to bring what we want to achieve, and hence how much we care, in line with what we can do in practice. Thankfully, such major mismatches are not a widespread problem: most people are pretty good at using how much they care, just like medication, it in the right doses to boost or sustain motivation. If it does happen – particularly at work – it’s worth bearing in mind one of the old adages of Change Management: never work harder than your change sponsor. More generally, don’t put in more effort than the person with overall responsibility, however much you care. Without their active engagement, there’s no way we will be able to achieve whatever the overall goal is. Sure, it won’t get done and we may end up frustrated, but at least we won’t end up burning ourself out.

Sometimes we just say that we care too much (usually accompanied with an exasperated sigh). This is not quite the same as what happens when our aspirations are too big for our capacity. Instead, it is what can happen when what we see as our reward is not commensurate with the effort we feel we are devoting. Typically, this involves another person by whom we are trying to do good, but who doesn’t appreciate our concern. Maybe that person is an ungrateful so-and-so, and if we do not get enough intrinsic compensation for our energy, perhaps it’s time to trim it down a little and focus our attention on more deserving causes.

But maybe the reason they don’t heap gratitude on us is that we are actually not helping them, or at least not in the way they need. We are, that goes without saying, not in the least a control freak, but perhaps we are acting more out of a desire to see them do what we think is best or, heaven forfend, to direct this other person’s life for them (in their interest of course). Or perhaps we are being an interfering busybody after all. So, whenever we hear ourselves say (out loud or under our breath) that we care too much, it may be time to wonder what is our true motive. Is it really because we care? Or are we sneaking in something else?

The dark side of caring

The more serious situations where caring too much can derail us and work against our own interest probably lie elsewhere, though. Caring about something or someone means we are prepared to make sacrifices to help and protect them: if necessary, we happily give up our time, energy or money to do so. But is that all we sacrifice? Society may judge us leniently if we sacrifice the principle that we should not harm other people, when one of these other people is threatening to kill a child of ours and we act to protect it. But might we perhaps be tempted to sacrifice our own sense of justice, in order to keep the same child out of jail, for example by providing a false alibi, or failing to report vital information to the police? If our best friend told us she had hit their neighbour’s car, but that she had driven off without notifying them, would we care so much about our friendship that we would not tell the neighbour? These are pretty tough questions – and that is because we care.

A little more innocent (but no less questionable) is the situation where we care so much about a particular belief or conviction, that we try to protect it from the truth. That can be exhibited through confirmation bias: when we believe something – and in particular if we want that belief to be true – we tend to seek out information that confirms and strengthens that belief, rather than information that could contradict it.

If you need this kind of fortress to protect your idea from the truth, you may be caring too much (image: SBA73 CC BY)

You may have come across the ‘2, 4, 8’ game, a wonderful illustration of how much we appear to do so. If so, feel free to skip this paragraph. Still here? Right, it goes something like this: there is a rule that the sequence of numbers ‘2, 4, 8’ obeys. You have to guess that rule by suggesting other sequences of three numbers, and you will learn whether or not they obey the rule. Many people start with the assumption that the rule is: the second and the third number are double the preceding one. They then proceed to give a sequence for which this assumption is true (e.g. ‘5, 10, 20’), and learn that it does indeed obey the rule they’re looking for, but that their assumption is incorrect. This video shows how people continue to look for confirmation rather than for disconfirmation (and gives the solution – if you want to play yourself, here is an online simulation).

When we care profoundly about a particular idea, belief or hypothesis, this can begin to feel as if it is part of our identity, part of us almost – like our children. And our instinct to protect it means we overlook, or dismiss evidence that contradicts it. We cast doubt over the sources of insights that refute it. And ultimately we end up caring more about this, than about the truth. Is that a good thing? Another tough question…

Caring is deep in our nature, and is behind a lot of our decisions and behaviour. But it’s easy to get carried away with it so we lose our sense of balance. Keep on caring, but care just enough, and be careful (!) what you sacrifice. May the coming year, whenever you are verging towards caring too much in whichever way, be a bit more care-less.

Lifting the veil over a mysterious custom

This is the time of the year when it is obligatory for any piece with even the vaguest reference to Christmas, gifts, or economics to mention economist Joel Waldfogel and his classic paper, The deadweight loss of Christmas. In it, he explains why the habit of giving each other presents at Christmas has an overall negative economic effect (to the tune of $25 billion worldwide per annum in 2009). There, that’s me done.

But is our collective engagement in an activity so detrimental to the economy proof that we are irrational beyond redemption? That is not so sure. Much of our behaviour that looks, superficially, as if it is irrational – in the sense that it appears to be a deliberate action that goes against our own self-interest – is nothing of the kind. Sometimes there is more to economic transactions than a material balance sheet showing a consumer surplus (in human language: we value the goods or services we have bought more than the money we paid for it).

Giving gifts is one of those transactions where this may well be the case. Let’s look at some reasons beyond material gain why it may make sense to buy someone a present.

Multiple beholders

They say value is in the eye of the beholder, and with gifts, there are often multiple beholders. There is not only the lucky recipient, but there is also you, the generous giver, and there are any number of bystanders, people who see or learn about your gift.

The material effect to the beneficiary is pretty clear – with a net gain of a jumper they are economically better off. You, on the other hand, are giving something away, so the material result of the transaction looked at in isolation is negative. But there are of course immaterial aspects to it. Picture the gift is a really nice surprise to the recipient, and they show this with great gusto, through genuine signs of gratitude. That’s the kind of stuff you cannot buy for money – except indirectly by giving such a wonderful gift. Is that alone worth the expense? Quite possibly. You can surely imagine how the elation of a loved one upon receiving such a brilliant gift might give you immeasurable happiness.

But there is more. Perhaps you have ulterior motives. Reciprocity is a social psychology concept that describes how a positive action is often encouraging an equally positive response. So by giving a gift, you “buy” a future favour of some kind (or simply some amount of social credit). A third possibility is that you value the warm glow – the emotional satisfaction of doing something good (like giving someone a jumper).

The signalling gift

What about the bystanders? Giving gifts can function as a signal. Nature is full of such signalling messages – from male birds building a spectacular nest to attract a mate, to gorillas thumping their chest to show their dominance. Now it is rare for people at Christmas to, say, build a house as a present for the one of their dreams, or to stand up during dinner and perform a chest-beating drum solo to show who’s boss. But a big, fat, expensive gift does signal to all and sundry that you are well off and generous, and that may be worth advertising (if that is your thing). A quirky, witty gift is a sign that you’re a quirky, witty person, and may be useful to build or maintain a certain reputation. Such messages too can have value.

But perhaps the weightiest signal a gift can send is not to others, but to the person receiving your gift. It is the sacrifice you make that shows how much you care. Part of this is the money you spend, but it may also be the time you’ve spent tracking down that rare David Bowie album, or indeed the amount of effort you put into knitting that unique jumper. It is important to bear in mind that it is the perception of your sacrifice in the eye of the recipient that matters, though. It must look meaningful, and that means not just anything will do. Your gift may be evaluated against the typical Christmas present (whatever that may be), or compared with other gifts (what are you giving to others, what are others giving to the recipient, or even what are others giving to others?).

Maybe what you are aiming to get in return for your present is prominence in the recipient’s mind? It’s all well and good to make a big impression on Christmas day, but if your gift is then promptly forgotten forever more, it’s a bit of a waste. In that case, you may want to consider something that they will use (or at least see) every day, providing a frequent reminder of your generosity and perspicacity. But subtlety is probably advisable: a life-size sculpture of yourself to put in the front garden may be a little too much.

With this multitude of possible reasons to give gifts, it’s not surprising that, for many people, this is a stressful affair. Giving cash – according to Dr Waldfogel the best way to counter the “orgy of wealth destruction” – would avoid all the confusion. The signal it sends, apart from the magnitude of the sum, is simply that you’re not into playing games and that you value economic efficiency. Then again, it may also reveal something about your personality, as economist Rachel Meager confessed in a tweet:

Like most economists, I too used to believe that my dislike of Christmas presents and my preference for cash was due to the inefficiency and inherent potential for deadweight economic loss in gift exchange. Later I realised that I was just afraid of intimacy.

Who knows, the overriding reason why we give gifts at Christmas might not be found in the various potential motives, or in what we believe we get in return. Among the strongest behavioural drivers is social proof, a term coined by Robert Cialdini in his classic book Influence. We tend to copy the actions of others, especially when we have no strong, clear preferences. And there is something to be said for that if you find it all a bit complicated: if you let yourself simply be guided by what others do, you are freed of all these other considerations, and you can enjoy a truly peaceful Christmas.

We should be pleased when what we observe contradicts what we believe to be true: wisdom arises when the unexpected happens

We people are simple at heart. We are of course incredibly complex machines – just think about the elements of your anatomy that allow you to read these paragraphs: the muscles, tendons and bones in your hands and fingers, your eyeballs that can turn left, right, up and down, with their diaphragms that can adjust to the light level, the nervous system that connects the lot together, and the brain with its billions of neurons to control it all and make sense of what you see. Yet we like the world to be simple… too simple perhaps.

A possible reason for this desire for simplicity is that we tend to prefer certainty over uncertainty. The dependable straight lines of the exclamation mark in ‘That’s the way it is!’ are so much more comfortable than the circuitous bends of the question mark in ‘What on earth is going on?’ We like our world to be predictable.

It’s the law!

Laws give us that certainty, which is why we are so fond of them. We expect moving objects to always obey Newton’s law, or we expect the economy to always follow the law of supply and demand. And where there are no such laws, we just construct our own. We form beliefs based on what we are taught or what we observe: BMW-drivers never use their indicators, or politicians are all crooks out to line their pockets. Pretty much we treat such beliefs as laws too.

The law of nice Dutch beer: there is no such thing as nice Dutch beer. Or is there?

And what do we do when we are confronted with facts that violate one of these laws? We have plenty of ways to eliminate the cognitive dissonance that we would otherwise experience. We can ignore it, or dismiss it as an anomaly that doesn’t count. “A nice Dutch beer? Ah, you mean La Trappe? But that’s a Trappist beer, which is a Belgian beer really!” We can question the validity of the facts, or of the person who raised them. (“Who mentioned a nice Dutch beer? Oh, Fred? But he knows nothing about beer!”) We can declare them to be outside our scope. (“Hertog Jan? Yeah, very nice, but they call it a barley wine, and I was talking about lagers!”)

What would happen if we didn’t immediately pull up the defences, but actually engaged with the apparent conflict between new facts and our beliefs? A few weeks ago, I came across a captivating discussion on Twitter, which featured a clip from a nature documentary. In it, a young female leopard that has just killed a baboon discovers that her prey was carrying a new-born young. Remarkably, rather than eating it, she proceeds to protects it from a bunch of hungry hyenas, taking it up into a tree, and keeps looking after it.

Some people may dismiss this film as fantasy, staged by the makers, in defence of the belief that leopards inevitably will kill and eat helpless little baboons. But if you trust it to be truthful and suspend that belief, an interesting question arises: what might be behind the behaviour of the young female? Clearly, she did not lack the instinct to feed herself, having just killed (and not even eaten yet, so she was still hungry) the baby baboon’s mother. Are we witnessing a stand-off between two instincts – one for survival, and one for maternal care?

It’s hard to tell. But what is obvious is that the primary instinct we associate with hungry predators is not the only driver for their behaviour. Even if we don’t suddenly see young leopardesses routinely starting to fostering orphan baboons, this single unusual, unexpected, frankly surprising event tells us something: it can happen. The belief that a hungry leopard will always kill and eat any prey animal, and never safeguard it, has been dented.

Progressive insight

If this can happen with beliefs about animal behaviour, then we can expect the same with human behaviour. In a recent episode of the Freakonomics podcast, one of the guests was Sheena Iyengar, a psychologist renowned for her work on choice. Her research lies at the basis of the so-called paradox of choice. Early in her career, she and Mark Lepper investigated how children react when they can choose from a multitude of toys. They found that, instead of being elated and engaging in play, the children “would look at all these toys and stare outside the window”. This went against the prevailing scientific belief at the time: more choice produces more intrinsic motivation, higher satisfaction and a greater sense of control. Iyengar and Lepper also conducted the now famous jam study, in which shoppers at a prestigious supermarket were shown a choice of 6 types of jam in one condition, and 24 kinds in the other condition. 60% of people stopped to taste with the larger amount of jams on display, while only 40% did so when just 6 jams were presented. But of the people who saw the 24 jams only 3% actually made a purchase, while 30% of those who stopped for the smaller display went on to buy jam. It seems we enjoy choice because we value the multitude of opportunities, but we don’t like the cognitive load of actually having to choose between too many options, like the children or the shoppers confronted with 24 jams.

Iyengar and Lepper’s experiments alone would be a good example of unusual, unexpected behaviour, which challenges a prior belief (“more choice is better”), and which gives rise to new insights. But it is just the beginning of the story: a lot of choice is not always too much choice. As Rory Sutherland once said, “if you’ve driven 27 miles around the North Circular (a notoriously unpleasant London road) to visit a place called World of Jam, you’re probably not going to walk in and go ‘Oh Jesus! There’s just too much jam.’” Context matters.

But does choice overload really exist? A meta-analysis, conducted by Benjamin Scheibehenne at Basel University and colleagues, cast doubt over its very existence, finding a mean effect size of virtually zero (albeit with wide variation). At the very least, the researchers concluded, it is complicated: not just the number of options available but also the structure, and the decision processes matter. And this finding too was not the last word. A further meta-analysis, by Alexander Chernev, a psychologist at Northwestern University, and colleagues, identified four factors (choice set complexity, decision task difficulty, preference uncertainty, and decision goal) that have a reliable and significant impact on choice overload.

Sheena Iyengar’s remarks in the Freakonomics podcast clarify what might be happening here. We don’t necessarily just shop when we go to a store. For instance, even if most of the time we routinely put the same products in our trolley, week in, week out, we still to some extent be on the lookout for new. In addition to replenishing supplies, we are then looking to update our knowledge on the available options, deliberately seeking variety and novelty. If one of our goals is to discover new options, then more options will be benefiting us. In contrast, when we go into your habitual coffee shop in the morning, we are not in updating mode at all: just give us exactly what we’re having every day, and leave out the choices.

Assumptions, better than beliefs?

Assumptions are often reasonable as a first order approximation in most circumstances. Classical music is more likely to feature violins than accordions; most popular Dutch lagers are pretty bland; people prefer more choice over less choice. But if they are turning into beliefs, it is much harder to accept there may be nuances we are missing.

If we are truly concerned with understanding the world better, whether it is in academia, trying to replicate social science experiments, or more generally, in our manifold interactions with our fellow humans, assumptions are more useful than beliefs. When beliefs are contradicted, we feel a strong need to defend them.

Assumptions, on the other hand, allow us to keep our mind open for the unusual, the unexpected, and the surprising. To paraphrase Paul Saffo’s ‘strong opinions, weakly held’ mantra, it is thanks to strong assumptions, weakly held that we learn that not all Dutch beers are bland, not all BMW-drivers are inconsiderate maniacs, and we can be doing more than just replenishing our pantry when we go shopping.

“Tell me what you want, what you really, really want”, the Spice Girls sang in their catchy hit Wannabe, 22 years ago. They were not (to the best of my knowledge) a bunch of economists. But they might as well have been, since economists too are often very interested to know what we really, really want.

Sometimes what people don’t want can be exactly as revealing as what they do want. If you are tossing a coin, and you do not want to choose heads, then the only other option is tails. By not choosing one, you automatically choose the other. If there are two choices for dessert on the menu – say fruit salad or ice cream – then, if you would like a desert but do not want the fruit salad, you will have to have to settle for the ice cream.

Meaningless

But if the number of options is larger, or undefined, then stating what you don’t want is meaningless. This is pretty much what Theresa May told the members of the British Parliament who intend to stop the UK leaving the EU without a deal.

The problem here is the withdrawal agreement (WA) prime minister May negotiated with the EU. This is, to put it mildly, not popular among the MPs who will have to approve it in a vote next week, on December 11th. Its 580-odd pages inevitably bulge with compromises, so it is easy for anyone to find fault with it. However, it is not clear exactly what the next steps would, or even could be if – as is quite possible – the WA is rejected. The only thing that is certain is that, unless there is an active intervention of some kind to stop it, the UK will leave the EU at 11pm GMT on March 29th. That is the law. If there is no deal, then that withdrawal will be without a deal – something for which, with less than four months to go, both the government and the businesses in the UK are profoundly unprepared. Some MPs believe that parliament can ‘take back control’ and stop such a no-deal Brexit. On December 4th, the Commons did indeed approve a motion which gave it the power to vote on what the government should do if and when the WA gets a ‘nay’. But as the prime minister said, it is not enough to say you do not want ‘no deal’, you have to be specific about what you want instead.

Best not to move your house before you know where you actually do want to live (photo: Katherine Jackson CC BY)

Focusing on what you don’t want can be quite compelling, though. Some people resign their job without having an immediate prospect of an alternative one, because they do not want to stay where they are. Others leave their home because they do not want to live with the other members of their household any longer. Walking away from what you don’t want like this, without having a clear idea what you do want, is risky. Still, most people do have a short-term stopgap: they live off their savings or stay with a friend, while they find a more permanent option. The issue here is generally not so much that it is hard to find a new job or a new place to live, but that it takes time.

But most of the time, we are not acting impulsively and without a plan. By coincidence, I have been helping my daughter and her family move house this last week. They have outgrown their current home, and need more space. Yet they didn’t just focus on the disadvantages of their existing place. Instead, right from the start they knew very well which features they wanted to see replicated and which ones they didn’t, and the trade-offs they were prepared to make. How close should the new house be to work? What should be the minimum size? How large a garden? What kind of location? Wisely, it was only when they found and bought a house they wanted more than the current one that they decided to move out – and not before.

What are the realistic alternatives?

If you focus too much on the undesirable features you want to leave behind, without being precise about what alternative you aim for, you risk building up a vague ideal that may bear no resemblance to what is achievable in reality. Choices imply trade-offs, and to make trade-offs, you need to know what is being traded off. But actually making trade-offs can be difficult, and it is tempting to evade them by continuing to dream about the best of all worlds, of having your cake and eating it.

Ironically, it is exactly the intense focus on ‘not being in the EU’, without a thorough consideration of the realistic alternatives and the trade-offs involved that has led to today’s problem. The referendum question itself was inherently asymmetrical: remaining in the EU was the preservation of a known status quo, while leaving the EU was entirely undefined. As Paul Simon sang, there must be fifty ways to leave your lover – and there must also be at least fifty ways in which the UK can leave the EU. Staying in the single market via the EEA, less well-defined concepts like Norway plus, Canada-plus-plus, and even Canada-plus-plus-plus, completely bespoke deals, and indeed no deal at all: all of them are forms of Brexit. But there comes a time when you can no longer fantasize about an existence outside the EU that is all puppy dogs and rainbows. At that point, there are only very few possibilities on the table from which a choice must be made. And that time is now.

Like a person who quit their job without another one to go to, who has been entertaining idealistic views of a new career without taking any concrete steps to find such employment, who has been basking in the satisfaction of having slammed the door behind them and taught the old boss a lesson, but whose savings are now running out, the British MPs are now faced with a stark choice. Nearly wo years ago, they voted overwhelmingly for the European Union (Notification of Withdrawal) Act, which allowed the PM to invoke Article 50 unconditionally. They thus voted for the UK to leave the EU on March 29th 2019, without any idea how that would happen, or what that would entail. Now their time, too, has run out.

Not too hot, not too cold, but just right in between (photo: Kaboompics.com)

The available options form an intriguing example of the compromise effect, and the prime minister is not letting that opportunity go unused to persuade MPs to support her agreement. You don’t like the agreement? If you’re a Remainer, voting against it means you risk the nightmare scenario of seeing the country crash out of the EU without a deal. If you are a hard Brexiteer who thinks the WA is too soft a Brexit, be aware that rejecting it could mean a new referendum, and possibly no Brexit at all. This can be a powerful stratagem to increase the attractiveness of the middle option.

There is something delightfully surreal about this configuration. Some MPs would undoubtedly prefer one of the alternatives to Mrs May’s WA, but they’d find the other alternative much worse. And since nobody knows right now which of the other two possibilities would become reality in case the WA is rejected by parliament, that puts them into a quandary. And that is before you take into account the preferences of your constituents as an MP: depending on the choice you make, they may punish you at the next election…

If only they had heeded the advice of the Spice Girls, and been clear about what they really, really want, instead of about what they did not want, when they voted to start the Brexit clock.

In praise of an underrated and underused mental instrument in decision-making

There is more to economics than the economy. Much of human interaction is a form of trading: we give something up, and we get something in return. Every time we do such a thing, a trade-off is being made. When we are making such trade-offs consciously, we can usually justify our choice based on using reason to evaluate the gains and the sacrifices, even if we have to work with limited information, and if we cannot possibly compute all the possible consequences.

We make many choices unconsciously too, of course – out of habit, or applying a simple heuristic, for example. The trade-offs in such choices still exist, but they do not necessarily reflect an expressed preference, whatever economists who adhere to revealed preference theory may say.

Not enough reasoning

A striking example can be found in a study by Shaun Larcom, a Cambridge economist, and colleagues, that looked at the travel patterns of London commuters. They found that a two-day strike on the underground system caused around 5% of travellers to adopt a different route, and to stick with it. One possible explanation for the inefficiency of the original journey the authors give is the fact that the London Tube map often provides an inaccurate picture of distances: the effect was stronger where the distortion is more extreme. Commuters ‘choose’ a route based on the map, and then maintain what they’ve always done; they do not calculate the optimum route. Being forced to try an alternative helped some of them discover a better choice.

But reasoning – or appearing to reason – is not necessarily evidence of a balanced consideration of costs and benefits. The legend of Faust describes the economic transaction between the central figure and the Devil, in which Faust trades his immortal soul for unlimited knowledge and worldly pleasures. He does not do so on a whim, but the story nevertheless paints him as someone driven by the short-term benefits, neglecting the longer term – eternal even – costs of the deal.

Now, sometimes we don’t have the luxury of patiently deliberating the possibilities that lie ahead of us and weigh up the pluses and minuses. In organizational change, the phrase ‘burning platform’ is often to refer to a highly compelling reason to do something different (or differently). It has its origin in the Piper Alpha explosion in July 1988. When an oil platform is on fire behind you, you don’t worry about how long you might survive in the cold North Sea water 15 stories below. When a decision genuinely involves life and death, your System 1 rightly takes over. You just jump.

Misusing our System 1?

But we are pretty good at mobilizing our System 1 even when the issue facing us is not one of sheer survival. If we want to avoid, or ensure, something at all cost, we are acting as if it is a matter of life and death. We engage the visceral mechanisms that serve us well when we experience an intense threat to our life, or to the lives of our loved ones – when there is in fact no such threat.

Sometimes a single issue can come to dominate our powers of reason to such an extent that it feels as if it must be pursued no matter what. We may think we are still reasoning, but often we are deluding ourselves. On a small scale, cravings can cause this to happen. We know that we should not open and scoff a third bag of crisps, or that we should not have another large glass of pinot noir, because we will regret it tomorrow – when we step on the scale, or experience the painful fireworks of a hangover. And yet, they become the most important thing in the moment, the thing that must happen at all cost, and we reason that the extra crisps or wine won’t make that much difference, really.

On a large scale we find issues like – how can we avoid the subject – Brexit. But let’s not look, for once, to the pros and cons of Leaving or Remaining in the EU, nor even to the content of the draft Withdrawal Agreement (WA) – the binding treaty that will secure the divorce after a 45-year marriage. Let’s cast our eye instead to the politics in the House of Commons, the lower chamber of the UK’s parliament.

When prime minister Theresa May unexpectedly lost her majority in the early elections she had called in May of 2017, she needed support from outside her party to form a minority government. She got it from the Democratic Unionist Party, which seeks to keep Northern Ireland within the UK (against the slow, but persistent trend towards unification of the whole of the island of Eire). As the agreement was struck, the DUP said, “The alternative [to a Conservative government] is intolerable. For as long as Corbyn leads Labour, we will ensure there’s a Tory PM.”

Now, that general confidence-and-supply agreement is in peril. The DUP, with just 10 MPs, was able to gain significant concessions from the government in return for their support. But they are now refusing to back the WA because of the notorious backstop relating to the border between Ireland and Northern Ireland. This will not only jeopardize the disproportionate influence on policy they have, but also increases the chance of new elections, which may well lead to the Corbyn government they called ‘intolerable’ not much more than a year ago.

On the other side, we have Labour which, under Jeremy Corbyn, is in favour of a united Ireland, and hence diametrically opposed to the DUP. Yet Diane Abbott, the shadow Home Secretary, said in a radio interview last week: “At this point we don’t agree with the DUP on the issues at stake, but in this parliamentary turmoil you can’t necessarily rule anything out. People in [Abbott’s constituency] Hackney sent me to parliament to get rid of the Tories, and if it’s all about getting rid of this Tory government, you have to do what it takes.” Maybe not quite a pact with the devil, but it comes close.

But it might be wrong to attribute these two cases of intense focus on a single issue to the dominance of System 1. There is plenty of reasoned justification involved. But what we may be observing here is the failure to imagine the full consequences of all the options.

1, 2 and 3

In order to make good decisions, we need to be able to consider future states of the world. Our System 1 may produce a quick and dirty evaluation of a future state, and our System 2 may give us a more considered assessment – but they both require something to work with. This is what Leigh Caldwell, a cognitive-behavioural economist, has labelled System 3. There is both neurological and psychological evidence of the existence of such a third, distinct mental process.

Maybe System 3, as Leigh argues, can (and does) make decisions autonomously, alongside Systems 2 and 1, depending on the situation. Another possibility is that the three cognitive systems work together and come to some kind of consensus – with sometimes only one or two of the three systems actively engaged. But whichever model you consider (and we need to recognize that these systems are just part of a model, not actual reality), one thing is clear. Unless we have a good detailed idea of the possible outcomes of a decision, we can only work with the present information – and that is not always a good predictor of the future.

Imagining a quicker commute is not that easy

We do not always use that System 3 as much as we could. It takes effort, and it can lead to unpleasant cognitive tension – we may say “I can’t imagine” something, but that often means we don’t want to imagine it, because it makes us feel bad. So our System 1 responds to the immediate situation, and/or our System 2 calculates the costs and benefits of the options as they are presented here and now. With more input from our System 3, we could more thoroughly evaluate not just the end states, but also the path to get there in the different possibilities ahead of us.

Whether it is imagining a quicker journey into work, or the outcome of a momentous political decision, we may well be better off by giving more power to our imagination.

When we say something leaves us cold, we don’t always mean absolute zero

Last Sunday, the Christmas lights were switched on in my town. This is an annual event, not just here, but up and down the country. The weather was nice and dry, but even when it is less clement, the switch-on seems to excite lots of people, children and grown-ups alike. But me? I am indifferent.

It leaves me about as cold as the Christmas market that takes place in our high street every Sunday from the first weekend of October, and as the Christmas displays in the shops that are ubiquitous this time every year. Not that I am complaining, even though moaning about premature Christmas decorations is a popular pastime in the UK. it is the country in which the phrase ‘Bah humbug!’ originated after all.

The no man’s land of indifference

Yuletide fans like to wheel out evidence that Christmas decorations signal a friendly nature, of course. (They have little regard for the fact that the research is now nearly 30 years old, and is rather more tentative in its conclusion than is sometimes implied.) The Scrooges, in turn, can point to articles like this, with a headline like “Why playing Christmas songs early is actually bad for your health”. Clearly it is not just Brexit that is dividing the British nation.

But just like I cannot get excited about tinsel and fairy lights, I cannot get agitated by them being applied early either. The whole affair simply leaves me indifferent.

Of course, nobody can possibly get excited about everything, and tastes differ. One person may be passionate about opera while they have a strong dislike of football, while for their neighbour it may be the exact opposite. But for many people, there seems to be a no man’s land in between like and dislike, where we simply don’t give a damn either way.

From an economic perspective, the subject of such feelings (or better, absence of feelings) provides us with neither benefits or costs – this is indeed a way of defining indifference as an economics concept. And there are actually quite a few such things when you start looking for them. For people without small children, for example, the provision of playgrounds in their vicinity is of no consequence. Yes, you may have something of a societal conscience, and feel that it would be good if there were playgrounds for families with young children – or you may have grandchildren, or nieces and nephews who would benefit from them when they visit, or with whom you identify.

But if everyone in your household is well beyond the age of being excited by a roundabout, a see-saw or a swing, playgrounds probably leave you cold. And if it’s not that, then there may be sports events (that you never attend), parks (that you never visit) or shops (where you never buy anything).

For things that involve public money, you could perhaps argue that their elimination would make you better off as you’d pay less tax. Or you could argue that playgrounds are an investment in public order, helping keep children occupied who might otherwise engage in mischief, causing an even higher cost than the upkeep of a play area. But unless you are so disposed, we are really talking about proper indifference.

Or so it seems, at least.

Not so cold?

Let’s look at other situations where we should be indifferent – say someone else will pay for something for you. They invite you for a meal, for example, or your uncle or grandma will pay for a new suitcase as a Christmas present, but she wants you to buy it.

The normal cost benefit analysis that we tend to use when we are footing the bill doesn’t really apply here.

Or imagine this situation, inspired by a discussion I had with a colleague last week, on what price we’d find acceptable for a hotel room “when the client pays”. You’ve booked a room at £150 per night, which is not out of the ordinary for the location, and you know that this will be entirely acceptable to the client. You then notice that this price includes breakfast – and that the price without breakfast is £25 less. A couple of croissants, a glass of juice and a coffee would cost about £7 in the café next door to the client.

If you had to pay out of our own pocket, you would most likely get breakfast in the café: £25 for breakfast feels rather overpriced. But if the client pays, and you know you can claim the cost, including breakfast, in full without problems, a rational you should really be indifferent to the price: you would not be better or worse off either way.

And yet, would you not feel a bit reluctant to allow the hotel to rip off your client, even if they would reimburse you without blinking, unaware of the overpriced breakfast? And you would probably not go for the most expensive dish on the menu, and still look for a good price for that suitcase, even if someone else is paying. It seems that indifference is not quite so indifferent.

Something similar may be happening with playgrounds, parks and the annual Christmas lights switch on. Imagine you had no junior relatives, and you could move into your dream house which would either be built in an area with a playground nearby, or in one without. Your choice. Would you pay more for one option than for the other? Probably not – so you’re indifferent!

The question whether we’d pay for something is a good way to establish whether we’re indifferent. But it may not paint the full picture. Let’s turn things around: what if the local council were to decide to take down all playgrounds, or sell off the park we never visit to a property developer? What if the cute, quirky shops that we never frequent were to close? Would we still feel indifferent, or would we actually experience this as a loss? If, by contributing say just £10, we could prevent the playgrounds disappearing, or the park being turned into a housing estate, or the shops shutting down – would we do so?

I am pretty sure I would, and probably more than £10. I would miss the playgrounds even if I never use them, and the park that I never go to. And I’d miss the quirky high street shops where I never buy anything. Even if all I was prepared to spend to stop their disappearance is a tenner, that is enough for anyone, including myself, to question my claim that all that stuff leaves me cold. That’s the endowment effect for you: once you have something, it’s hard to be indifferent about it.

I would even be prepared to contribute to ensure that each year, there’d be Christmas decorations in the town, and even to have the annual event of switching the lights on.

It could be the Christmas spirit taking hold of me. But really, I think this stuff may not be leaving me as cold as I first thought…

We all need a little faith, once in a while, when we’re faced with a difficult problem and we don’t know what is the best solution. But it’s best not to use it as a substitute for curiosity

Are you curious? I bet you are. The fact itself that you are reading this suggests that you are interested in finding out what this article is about. Maybe you even expect to learn something (I hope you do!). But even if you’re just reading this to while away a few idle moments, there are most likely other areas where what you do is motivated by curiosity.

A good thing on balance

Checking your social media feeds, watching or listening to the news, reading a book, viewing a documentary or even a soap opera or a reality show – if you were not curious what the next page, the next minute or the next episode would bring, you would already have ceased checking, watching, listening etc.

Curiosity doesn’t get the unequivocal thumbs up, though. The English proverb curiosity killed the cat ascribes lethal capacities to it. And in a famous Kipling story a little elephant with “’satiable curtiosity” initially gets beaten up for asking too many questions, but eventually its curiosity is vital in providing all elephants ever since with a most handy appendage.

So it is in practice for us too: curiosity is a valuable trait. Arguably, the success of our species so far, as well as the prospects of its future are closely tied to this trait. Maybe that is symbolized by the most important punctuation sign by far: the question mark. We owe a debt of gratitude to our ancestors for their why, how, when, and what questions which have led to all the good stuff we have today, from agriculture and electric cars to cancer treatment and Netflix.

So, curiosity is a key driver for acquiring knowledge, insight. This can serve us personally – if we are more educated or skilled our work can be more financially and emotionally rewarding. And it can serve others: when we put to use what we learn thanks to being curious, our family and friends, our colleagues, our clients (and indeed our readers, I should add) can also benefit.

Costly curiosity

But responding to curiosity is costly. When it comes to choosing things – whether it’s breakfast cereal, a car, a sofa or even a house or a life partner, most people are by and large satisficers, rather than optimizers. This means that we tend to go for answers, solutions or choices that are “good enough”, rather than figuring out what is the very best one. As long as we avoid a major catastrophe, we seem to be reasonably content.

There are several possible reasons for this. A recent paper by Larbi Alaoui and Antonio Penta, two economists at the university of Barcelona, explores why we stop reasoning before we have found the best answer. Being economists, they hypothesize a trade-off between the (expected) benefit of a better solution, and the (cognitive effort) cost of discovering it. However, such a cost-benefit analysis may not always be the only or the dominant factor in the decision whether or not to continue reasoning.

We often don’t know for certain whether there is a better solution to be discovered, whether we will actually find it, and how much effort it will take. How we deal with this uncertainty may depend on who we are, and on the context. Some people may derive intrinsic joy out of exploring possibilities – thus lowering the cost of satisfying their curiosity. But others may, in contrast, have an aversion to thinking, or fail to systematically pursue all the options because they are under time pressure and the fear of failure is large. (This can sometimes be spotted in TV game shows.)

But even establishing whether ‘a’ solution to a problem or ‘a’ choice is ‘good enough’ may require some measure of cognitive effort. Ultimately, we need confidence that it will indeed be good enough – i.e. it will not be disastrously wrong. Maybe we need to work something out, imagine different futures, or do some calculation and check that the result is above or below a certain threshold. Maybe we need to estimate a number or likelihood. Or perhaps we can rely on previous experience, or on heuristics.

A bad trump card

But there is one thing that can trump all that: faith. Faith can give us confidence, without requiring evidence.

That can be quite helpful. If it is too effortful to work out which of two satisfactory options will be better, and we are uncomfortable with tossing a coin, then a sprinkle of faith can add to the confidence we already had in one of them and seal our choice. But faith is such a powerful element in our decision-making process, that it can overshadow all other aspects.

In an article in the Guardian last week, Rafael Behr described a striking illustration of how this can happen. It featured the then-Brexit Secretary, Dominic Raab (who has since resigned from the British government over the draft EU withdrawal agreement that prime minister Theresa May is – as I write this – still valiantly defending in the House of Commons).

Raab had, to use a phrase that was inadvertently coined by George W Bush, ‘misunderestimated’ the importance of cross-channel trade for the UK economy, notably the Dover-Calais crossing. In doing so, he joined his predecessor David Davis and other leading figures on the Leave side of the Brexit divide, whose assumptions and predictions had likewise often turned out to be at odds with reality (see this Twitter thread for some choice examples).

There is of course nothing wrong with being ignorant, even though it is not always bliss. We are born ignorant, but also with the capacity to ask questions and learn. As Behr points out, however, the key flaw in Mr Raab’s attitude and that of his naïvely optimistic colleagues was that they did not ask. Their faith in the righteousness of the cause, and in the ability of determination to overcome every and any obstacle disengaged their curiosity. And when there is no curiosity, there is no awareness of ignorance.

This would appear to be a peculiar instance of a cognitive phenomenon known as motivated reasoning, peculiar in the sense that there is hardly any reasoning involved. Normally, those who engage in it will emphasize the facts and data that support the conclusion that they prefer (or that they believe is most likely). Like a lawyer for the defence or the prosecution in an adversarial case, they are highly selective to build and strengthen their argument.

What we see here, however, is the justification of a choice based entirely on faith, which makes facts and data unnecessary. Genuine curiosity tends to generate question upon question in the search for understanding.

But if faith is all there is, there is just one rhetorical question: “How difficult can it be?” The only value of this question is that it is a rather good tell-tale sign for the problem.

Faith, next to curiosity, can play a useful role in decision-making, in particular to combat indecisiveness, and to provide enthusiasm for a satisfactory, rather than an optimum choice. But it can be very dangerous when it is used on its own. Before you know it, it can have fooled you into thinking that there is no need for facts or data, and shut down your curiosity.

Isn’t that curious?

]]>https://koenfucius.wordpress.com/2018/11/16/how-difficult-can-it-be/feed/0leap of faith 2koenfuciusloads of moneyblindfoldA new life or an old life?https://koenfucius.wordpress.com/2018/11/09/a-new-life-or-an-old-life/
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One of the fundamentals of economics is also a fundamental of life. It involves cake and eating.

Most people know pretty well what actions are needed to make babies. But these technicalities are a necessary condition, rather than a sufficient one to actually produce a new life. For some couples with a desire to have children of their own, that first step is not a straightforward process.

About 1 in 7 couples may have difficulty conceiving. 16% of couples will fail to become pregnant naturally within a year if they have regular unprotected sex, and those who have unsuccessfully tried to do so for more than three years have only a ¼ chance of succeeding in the next year. Many such couples turn to in vitro fertilization (IVF).

Science to the rescue

Thankfully, for British women this intervention is available free of charge through the UK’s National Health Service. But IVF is not a done deal. The chance of a successful treatment falls rapidly with the age of the would-be mother, from 29% for women aged under 35, to just 2% for women over 44.

The age of the first pregnancy for women has been steadily rising (e.g. in the UK from about 26 years in 1974 to 30 years in 2015). This means that more women discover relatively late that they may need to resort to IVF, and hence the number of them seeking the treatment when they’re 35 or older is growing. The average age of a woman receiving IVF treatment in 2016 was 35.5, up one year since 2000.

40 years ago – the first of many

But recently the treatment has been refused to women over 34 in twelve areas of the UK (and is no longer offered to anyone in a further seven). Not surprisingly, this has been met with protestations. What is going on?

The NHS, the UK’s flagship (at least in the eyes of a sizeable part of the British population) health service, does not have unlimited resources, and funding has been under pressure for years. In one area’s own words, it has “taken into account the relative cost-effectiveness [of IVF] compared to other treatments that could be funded with the resources we have available.” In the UK, the cost of IVF is around £5,000 ($6,500) for one cycle. Of the 68,000 IVF treatment cycles in 2016, 41% were funded by the NHS – a total cost of about £139 million.

That looks like a sizeable amount, but if you compare it with the bill for cancer diagnosis and treatment, it is relatively small: the NHS spends about £8 billion ($10.5 billion) on this. Look at the individual patient expenditure, though, and the picture changes. A woman under 40 is entitled to up to three IVF cycles funded by the NHS. 29% of those under 35 will be lucky and become pregnant in the first cycle. Yet others won’t, and a woman under 35 will, on average, receive 2.2 IVF treatment cycles, with an overall probability of around 65% of getting pregnant. The average number of cycles increases, and the probability of a successful pregnancy decreases as the age of the woman at the time of the treatment is higher, as the table shows.

The key number to look at is the he cost of producing an IVF-baby. This increases rapidly from just over £17,000 for women under 35 to £250,000 for women over 44. For women aged 38 or 39, the cost is already a little more than that of diagnosing and treating a cancer patient, which is £30,000.

The healthcare cake

This is the choice the people in the NHS face: should they spend £30,000 of their scarce resources to fund the treatment of a cancer patient or for producing a pregnancy in a woman aged 38 or 39? Should they prioritize the old life, or the new life?

They can only spend every pound once. They can, as the hackneyed phrase has it, either have their cake, or eat it – but not both.

Those stark trade-offs confronting health decision makers are not always apparent to the rest of us. We are only superficially aware of how healthcare is funded. Our tax and social security contributions are deducted automatically from our income, and we don’t really know what they actually buy. On the other hand, we are used to healthcare being available on demand – without ever having to make a trade-off between having a filling in our wisdom tooth, and having physiotherapy for our sprained ankle. We can have both. So it is not entirely surprising that we wonder why we can’t have IVF and cancer treatment.

Trade-offs – like this one – are a core concept in economics, but not just in economics. The economist Robert Frank argues that in the future Charles Darwin (rather than Adam Smith) may well be seen as the father of economics. Evolution itself is indeed characterized by trade-offs, notably between the benefit of a trait for the individual, and the benefit (or cost) of that same trait for a larger population. He gives the example of the antlers of the male elk. To secure a mate, a bull elk must dominate, and if necessary fight off, a bunch of rivals. The bigger his antlers, the bigger his advantage in stand-offs and combats – and the more likely he will be able to pass on his genes.

But keeping pushy suitors away from his is not male elks’ only concern. They must also be able to outrun wolves. And then the construction on their head, weighing nearly 20 kg, is rather inconvenient, making escaping a hungry pack much harder. So a better chance to procreate for the individual comes at the cost of an increased likelihood of being eaten by wolves – for all bull elks.

Imagine the elks could agree to reduce the size of their antlers by 50%. The relative advantage of the toughest bulls would persist, but they would all be much better positioned to escape a wolf attack.

Of course, elks don’t have that capacity. Most animals don’t even consider multiple simultaneous options, don’t weigh up immediate advantage with benefits in the longer term and so on. They just follow their instincts, fine-tuned over many generations to favour whatever option is optimum for the continued success of the species. Their very existence today is testament to this.

For us humans it is a bit different. Evolution has endowed us with the ability to evaluate costs and benefits of multiple competing options. We can reason about which is the better of a range of possibilities… and we can ponder the question whether we prefer to have our cake, or to eat it.

Unfortunately, that doesn’t give us a quick and easy shortcut to choosing between spending money on IVF treatment, and spending money on cancer treatment – between favouring a new life and favouring an old life. If we had to make that kind of decision in our personal life, it would be a tough call.

And yet so it is for the NHS (or any health insurer). It is not different from the hypothetical dilemma in which you would have a daughter struggling to conceive, and a spouse who is suspected to have cancer, and you have only £30,000 available. You would be able to help one or the other, but not both.

The call is no less tough for the people who need to allocate the scarce, limited resources available for the health of the nation. There are no easy answers.

It is good to remember this, before we start criticizing them for making the wrong choice.